A complete book on how to sell your company

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Decide to Sell

It stands to reason that before selling a business, you must decide to sell it. As simplistic as this sounds, it is an area of great difficulty for the business owner who has worked very hard for very many hours to build his or her business. Letting go is not so easy when one's business represents a major part of one's life. It is an emotionally wrenching decision that only other entrepreneurs can understand.

Because it is so difficult psychologically, some people put off the decision to sell or enter into it in a sort of non-committal fashion. If you are going to sell, you need to make a commitment to that end and work toward the best price possible for your company. If your decision to sell is wishy-washy, it will hurt your chances of a successful sale now and in the future. A business that is on the market and then pulled off the market has a strike against it the next time around. Prospective buyers will ask themselves:

"Is it really for sale this time, or is looking into it a waste of time?"
"If it's a good business, why wasn't it sold before?"

Buyers are very suspicious of prospective sellers. Ambivalence can only give them more cause for suspicion.

Even worse than ambivalence is holding onto the business for too long. If the owner has lost the drive to build or at least maintain the business, the value will slowly but surely go down. The value of the business will decrease as the owner's enthusiasm, financial status, and attractiveness of the company decrease. I have seen a lot of firms that would have commanded a much better price one or two years prior to the owner's decision to sell.

If you are ready to sell your company, make a commitment to doing it and then plan and work toward that goal.

How Long Will It Take To Sell?

Almost every business owner we have helped sell their business has asked how long we think the process will take. Unfortunately, this is not only one of the most common questions that we are asked, it's also one of the hardest to answer. With over 25 years combined experience as business brokers, neither of the authors has ever seen a sale close in less than 90 days. Most sales take between nine and fifteen months from the time the owner signs a brokerage agreement, until the closing.

Some sales that we've brokered have taken two or three years to complete. Often, these longer sales are ones where either the buyer or seller walks away from a deal, but resumes negotiations months, or in some cases years later. Sellers sometimes decide to put the selling process on hold if an unexpected event negatively impacts the results, giving their business time to improve.

Why don't deals close in less than 90 days? In the best case scenario you might have a timeline that looks like this:

List Business for sale

Prepare Marketing Materials (1 week)

Locate Prospects (2 weeks)

Allow Prospects to learn about and understand your business (2 weeks)

Negotiate Price and Terms (2 weeks)

Legal Review (1 Week)

Due Diligence (1 month)

Close the Deal

In this ideal timeline a deal would takes three months. In reality, in this idealized timeline, the time allowed for each step is ridiculously optimistic.

The best advice is to assume that the sales process is going to take a couple of years. If you are approaching a life-changing event, remember that you are far better off selling a year before you need to sell than waiting until a day after you absolutely need to sell and either shutting the business down or selling it at a fire sale price.

Trying to Time the Sale (When is the "right" time to sell?)

There are brokerage firms that call people when business is booming and the economy is humming along and tell prospective sellers that now is the time to sell, while prices are high and business is good. You'll get a higher multiple, they claim, and there is an element of truth to that. However, as we know the market environment can change in days or weeks and selling a business takes months or years. How do you know that your business will sell before the market turns down? Conversely, the good times may last years. If you are growing at 25% a year and sell today, who's to say that you wouldn't have been better off waiting three years and selling for double (25% compounded over three years is 95%).

When business is bad, companies consolidate and the same brokers who argued that you should sell during the good times now point to the industry consolidation and use that as a reason that now is the time to sell. They say that you should sell before the economy gets worse, before too many competitors merge and leave you as a smaller player.

Here's a dose of the truth. It almost never makes sense to sell a healthy business based on a strictly financial analysis. If you can get 3 times earnings today you're better off waiting 3 years then selling (even if you can only sell for a penny). If you can get 5 times earnings you're better off waiting 5 years, 7 times earnings; wait 7 years and so on.

Yes, there are advantages to selling now. Selling frees up your time, which is worth something. Selling allows you to diversify your financial holdings and reduce risk. However, the time to sell is when you begin to feel burned out, you'd like to travel, or spend more time with your family. In short, sell when it makes sense for personal reasons. Sell when selling makes you happy.

Bottom line: don't try to time a process that takes months or years to hit a particular day or week. Maximizing the multiple is nice, but unless you know how long a transaction will take, what will happen with your particular business, what each prospective buyer's finances will be like in the future, and when markets will peak with some degree of certainty, it's not an achievable goal. If you can accurately predict markets performance months in advance play the stock market and get rich.